Fifth Third Bancorp and Advent International have signed a definitive agreement whereby Advent International will acquire a 51% interest in Fifth Third’s processing business through the establishment of a joint venture that values the new company at approximately $2.35 billion before valuation adjustments by either party.
Fifth Third will retain the remaining 49% interest in the new company, Fifth Third Processing Solutions.
Pursuant to the agreement, Fifth Third Bank, an indirect wholly owned subsidiary of Fifth Third Bancorp, will contribute the assets and operations of Fifth Third’s merchant acquiring and financial institutions processing businesses to a new limited liability company (LLC). The LLC’s capitalisation prior to the purchase of this interest will include senior secured notes payable to subsidiaries of Fifth Third in the amount of $1.25 billion.
Advent will pay Fifth Third $561m in cash for a 51% ownership interest in the equity of the LLC and for certain put rights. Additionally, Fifth Third will receive warrants in the new company exercisable in certain circumstances. Fifth Third estimates the valuation adjustments related to these warrants, the put rights and minority interest discounts may reduce its implied valuation of the business by an estimated $50m.
The agreement is subject to certain potential purchase price adjustments. Fifth Third will retain its credit card issuing business, including retail credit card and commercial multi-card services.
The transaction is subject to regulatory review and approval by the Ohio Department of Financial Institutions as well as review under the Hart-Scott-Rodino Act. It is currently expected to close in the second quarter of 2009.
Credit Suisse acted as exclusive financial advisor, while Sullivan & Cromwell, Chapman & Cutler, Alston & Bird, and Graydon Head & Ritchey acted as legal advisers to Fifth Third in this transaction. Morgan Stanley and Weil, Gotshal & Manges acted as financial and legal adviser, respectively, to Advent.
Kevin Kabat, chairman, president and CEO of Fifth Third Bancorp, said: Partnering with Advent will provide the processing business with access to additional capital and resources that we believe will create significant new opportunities and incremental growth in that business. At the same time, our ability to offer the best-in-class capabilities of Fifth Third Processing Solutions to our banking customers will continue to be a key entry point for us in creating new relationships and in expanding existing relationships.
